Risk Assets Selloff Amid Rate Uncertainty

Higher levels of volatility are persisting in the markets for the third day in a row as U.S. debt and equities are selling off, erasing the rally from yesterday.  While positive economic data showed median household income at their highest levels in nearly a decade, the uncertainty over future interest rates as the FOMC entered its quiet period before the Sep. meeting overshadowed investor sentiment.  The decline in U.S. Treasury prices pushed the yield on the 10-year note to a session high of 1.752%, also its highest mark in three months.

In line with stocks and bonds, oil prices tumbled more than two percent today following a report from the International Energy Agency that pointed towards the supply surplus carrying into 2017.  Decreased demand from India and China were identified as the principal causes, however a lack of a production freeze agreement amongst OPEC members is expected to magnify the imbalance.  Investors will be looking for definitive progress towards supply reduction at the OPEC meeting scheduled to take place in Algiers later this month. 

In foreign markets, European equities finished mostly down on the day after a choppy session, as declining energy prices and continued concern over the slowing of ECB monetary easing weighed on asset prices.  In addition, the U.K. inflation rate for August came in unchanged from the prior month at 0.6%, slightly below expectations of 0.7%, which prompted a weakening of the pound against the US dollar to $1.3199 per pound.  In Asia, despite strong Chinese factory output, investment, and retail sales data being released, markets traded mixed as investors viewed the data as a hindrance to future easing from the People’s Bank of China.

All three major U.S. Stock indexes are currently down almost 1.5% on the day, while Treasury yields/swap rates are up 2-9 bps across the curve in a bear steepening pattern.  A barrel of WTI crude is down to $44.85 while Brent crude is hovering around $47/barrel.